The general ledger contains the summary of all financial transactions needed to prepare end-of-period financial statements. This ledger provides the basis for preparation of the company income statement and, finally, the balance sheet.

Sections

This ledger uses two columns, one for debits, the other for credits. A general ledger contains five primary sections: assets, liabilities, equity, revenue and expense. Assets, liabilities and equity eventually become the balance sheet, and the revenue and expense sections become the profit and loss statement.

The Dividing Line

All of the sections, along with their accompanying accounts, form a list on the left side of the ledger. Account entries appear on either the left side or the right side of a vertical center line on that sheet. Enter the assets and expenses to the left of this line and the liabilities, equity and revenue on the right side.

Source Documents

Accounts and figures appearing in the general ledger originate somewhere. The transactions are in other journals, which also contain the location of original receipts, invoices, deposits, payments and statements. Journals are the records of these source documents, which then become source documents as well.

Computer Assistance

The outcome should be the same. At one time, all entries were recorded manually, a tedious and time-consuming procedure. A computer fine tuned the process, making the process much faster, more consistent and more accurate. This decreases the time it takes for maintenance of the general ledger, proving account totals and generating financial statements.

Analytical Tool

The general ledger makes it easy to spot a mistake, especially finding duplicate entries or transposition of numbers. Sometimes it is easy to find an error because it is somewhat obvious. Other times, the original entry appears for analysis. There are more reasons to analyze the general ledger, but the tracking of errors is most important.

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What is a General Ledger?

Business Definition for General Ledger

General Ledger - Definition